Editorial | The war and renewables

As was the case when the United States and Israel went to war with Iran 14 months ago, the renewed – and expanded – fighting in the Middle East has underlined why Jamaica must accelerate its programme for renewable energy.

Indeed, the logic is clear: decreased dependency on imported oil and greater price stability in energy. This translates, ultimately, to enhanced energy security.

It is against this backdrop that the minister with responsibility for energy, Daryl Vaz, should urgently provide an update of the Government’s renewables programme which should, by 2030, generate at least half of Jamaica’s electricity, including the status of the two projects to provide 100 megawatts of solar power, for which the Government’s Generation Procurement Entity (GPE) more than a year and a half ago, named the firms SunTerra Energy and Wigton Energy as the winners of the bids.

It is believed that these companies were issued with confirmation licence early in 2025, but that the build-out of their facilities is being delayed because they are yet to conclude power purchasing agreements (PPA) with the monopoly electricity transmission and distribution company, Jamaica Public Service (JPS).

Negotiating these PPAs are likely to have been complicated by the uncertainty of JPS’s future in Jamaica under the current owners, given the Government’s decision last year not to renew its existing operating licence when it expires in July 2027. It remains unclear whether JPS will receive, or accept, a negotiated licence, or if a new entity will take over its operations.

The same uncertainties are likely to have affected the JPS’s installation of 171 MW of renewables, having asserted its first right of refusal for the replacement of an equivalent amount of its own oil-powered generating capacity that is now obsolete.

PREDICTABLE AND TELLING

These issues have been thrown into sharp relief, and have added urgency, in the face of Saturday’s attack by the US and Israel on Iran, ostensibly to curb the country’s nuclear ambition, but also to foment regime change in Tehran. Iran, which has insisted that its nuclear programme was for peaceful purposes, has retaliated by attacking several countries in the Gulf region that have either US military bases, or close strategic ties with the United States.

Among them are Saudi Arabia, the emirates of Abu Dhabi and Dubai, as well as regional neighbours such as Kuwait, Qatar and Oman.

Fighting has also erupted in Lebanon, which Israel has attacked and entered against the Iranian-back Hezbollah militia, while the Iran-supporting Houthis in Yemen have threatened marine transportation in the Red Sea shipping lanes. At the same time, the Iranians have pledged to prevent “even a drop of oil” from passing through the Strait of Hormuz, the narrow, dead-end sea passage between Iran and Oman, which accounts for the movement of around 20 per cent of seaborne oil.

The upshot of all of this is predictable and telling: a further upward movement of oil prices, which were already on the increase since the start of the year as the US president, Donald Trump, ratcheted up threats against Iran.

For instance, having spiralled six per cent up on Monday, the benchmark Brent crude jumped over eight per cent on pre-close trading on Tuesday to US$84.24 per barrel. West Texas Intermediary was also up eight per cent to US$76.93. Year-to-date, Brent is up over 28 per cent.

SERIOUS IMPLICATIONS

Why is this important to Jamaica? It has serious implications for the economy – from the price of petrol at the pumps to the cost of domestic and industrial electricity, and hence the cost of goods and services. And it is happening at a time when the Government is facing fiscal challenges after Hurricane Melissa in October that cost 41 per cent of annual GDP. Even before these developments, the economy was projected to decline by around two per cent in 2026.

Further, the Government’s fiscal policy paper suggests that it has predicated its Budget for the 2026-27 fiscal year at US$60 per barrel oil, based on the trend of recent years. All things being equal, significantly higher oil prices suggest a windfall for the national Treasury in increased imported duties and more general and special consumption taxes paid by importers and consumers.

But there is the potential downside impact on the broader economy. Annually, Jamaica imports over 20 million barrels of oil, for which, in recent years, it spends around US$2 billion. The implication of even a five per cent hike of this bill is obvious – US$100 million in increased payments, which will require an increased outlay of foreign exchange if the same level of imports is maintained.

Potential stresses on the exchange rate could be amplified if the Middle East conflict is prolonged, global confidence dips further and economic growth falters, with negative impact on Jamaica’s tourism industry and other exports.

Jamaica, at this time, may not have many levers to pull to influence global events. But it is not totally without options. Renewable energy is one of them.

Currently, under 15 per cent of the island’s electricity for the national grid is from renewables – a far cry from the 50 per cent that the Government projects it should be in a mere four years’ time. But the island has abundant sunshine, which is unlikely to go away any time soon.

Moreover, the improvement in solar and battery storage technologies is helping to address the need for redundancies in grids, which, up to now, has largely meant maintaining oil-powered generators for the periods when the sun doesn’t shine or the wind doesn’t blow.